-- Posted Tuesday, 13 May 2008 | Digg This Article | Source: GoldSeek.com

By: Gary Tanashian

This week's chart was so titled because there is the potential for a major Head & Shoulders Top to form.  The last thing gold sector investors want to see here is a continued rebound that fails at around 450-475 and rolls over for a re-test of the recent lows.  The more time that elapses before such a re-test, the more opportunity for the theoretical right shoulder of the would-be H&S to form.  Note that if such a formation does occur it would not be trouble as long as the neckline at around 380 holds.  But it would be nice to avoid even having to deal with this process.

The lateral support in the 350-375 area is very strong, having been constructed by months of sweat and toil as the yield curve (noted on chart) made a solid bottom.  Speaking of the yield curve, it is currently taking a much needed break as the panic of the first three months of 2008 subsides.  Not coincidentally this is occurring in tandem with the continued hope rally in major markets as mainstream investors continue to reset & recalibrate their emotions and a correction in gold and gold stocks.  The yield curve may drop a bit lower (and the markets pop a bit higher) in the short term, but as noted here, the market's long term momentum indicators will create a ceiling before too long.

That leaves us with counter-cyclical gold and the counter-cyclical gold miners.  The rising yield curve itself is counter-cyclical.  At some point the miners will anticipate the next rise in the curve and it would certainly be nice if they do so after already having dropped to test the recent lows or preferably, break to new lows and hold strong lateral support.  All of this happening before that right shoulder has a chance to even think about forming would be quite a set up for those of us who like to buy the washouts in this sector.

HUI daily chart posted 5/13/08

-- Posted Tuesday, 13 May 2008 | Digg This Article | Source: GoldSeek.com

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